Support 44 September 2012 CanonsCanons ofof GoodGood LendingLending ! LAPO Loans Are Cheapest In The Nigerian Microfinance Industry Pg 14 ! LAPO MfB Disburses 20.5b To Micro Entrepreneurs In First Half Of 2012 Pg 21 Contents LAPO MfB At A Glance Editorial Comment Page 3 Loan disbursed in 2011: NGN 31.5 billion Disbursement target for 2012: NGN 49.3 billion Microfinance Forum Page 4 Disbursement as at Sept.: NGN 32.95 billion Microfinance And Repayment rate: 99.5% Agricultural Financing Portfolio At Risk >30 days (as at September 2012): 0.81% Cover Story Page 5 Canons Of Good Lending Active clients as at Sept. 2012: 712,881 States covered: 26 Field Progress Report Page 7 Regions: 13 Branches: 302 Our Lives With LAPO Page 11 About LAPO MfB Faces Of LAPO Page 12 LAPO Microfinance Bank Limited is a pro-poor financial institution committed to the Interview Page 14 economic empowerment of low-income Nigerians through the creation of access to responsive financial services on affordable and LAPO News Page 21 sustainable basis. The institution was founded as a non-profit entity by Mr. Godwin Ehigiamusoe in 1987 while working as a rural co- LAPO MfB Disburses N20.5b To Micro-Entrepreneurs operative officer. In First Half Of 2012 LAPO MfB Concludes Bullet Proof Manager Training Our Vision LAPO NGO Screens 135 Clients For Cervical Cancer First choice Microfinance Bank delivering 582 Clients Benefit From LAPO NGO Malaria Services responsive financial services while meeting the LAPO NGO Screens 3,585 Clients For High Blood expectations of all stakeholders on a Pressure, Diabetes sustainable basis. LAPO MfB Rewards Clients LAPO Staff Certified As Microfinance Bankers Our Mission To empower our clients through access to affordable financial services delivered in a Support is published by LAPO MfB cost-effective and innovative manner. Limited @ 18, Dawson Road, P.M.B 1729, Benin City, Edo State, Nigeria. Tel: 234-52-882169/881163. Email: [email protected] Website: www.lapo-nigeria.org 2 Editorial Comment his edition of Support, like all previous editions of Also, Tim Ogbebor's article entitled “Canons of Good Support is a bumper harvest. From the first page to Lending” is a classic for students and professional bankers Tthe last, our readers are served informed especially of the microfinance genre. The pedagogic piece commentaries and analysis on development-related issues. highlights some of the “doables” or what he calls “canons' of The edition opens with an incisive analysis of the correlation good lending. The piece is a must-read for every practitioner between Microfinance and Agricultural Financing authored of microfinance. by Godwin Ehigiamusoe, the Managing Director and CEO of LAPO MfB Limited. The policy-focused piece calls the Reports from the various branches of LAPO MfB across the nation's attention to the enduring problem of financing country enrich this edition a great deal. The progress of agriculture in Nigeria's political economy and concludes clients in their respective businesses in different parts of the that the idea of using the operational strategies of country is meticulously reported. Special reports on Eleyele commercial banks i.e, priority being given to short term and Port-Harcourt branches are indeed good testimonies of loans and deposit mobilization practices that are not the progress being made by the bank in the field. News responsive to agricultural lending should be reversed to reports on development across LAPO combines to make make microfinance relevant to the national economy. His this edition a must read for all. Happy reading. insightful interview chronicles the progressive growth and development of LAPO MfB over the years, milestones, challenges and issues concerning microfinancing in Nigeria. Editorial Board Godwin Ehigiamusoe - Chairman Editor James-Wisdom Abhulimen - Secretary Executive Editor Moses Ehigiamusoe - Member Sabina Idowu-Osehobo “ Ugo Ezeana “ Gender empowerment training organised by LAPO NGO in Lagos State. Francis Osayomwabor “ Felix Oriakhi “ 3 Microfinance Forum With Godwin Ehigiamusoe Microfinance And Agricultural Financing Another explanation for the scanty attention to farming is ascribed to the nature of microfinance products and major challenge and criticism of microfinance operational procedures. For instance, loan duration of most loan products is short, usually less than eight months. Also, today, at least in Africa is its inability to meet the loan sizes are usually small and only sufficient for petty financial needs of farmers. This concern is A trading. These reasons appear plausible. In reality, however, understandable. Despite the prominence given to tourism in they have no valid basis for the exclusion of farmers from Kenya and petroleum in Nigeria, farming remains the main financial services. occupation of most people across the continent. The fact is that poor repayment performance by farmers is In villages and hamlets, men and women are engaged in the due to other factors other than the “acquisition” of wives. oldest occupation. We are frequently told that agriculture Inappropriate operational procedures and poor still ranks the biggest employer of labour and contributor to understanding of the needs of farmers are culprits. For the gross domestic product of most African economies. If instance, farmers who receive loans far into or after farming properly supported, the sector has the capacity to do even season would most probably misapply the facility. Loan more. The neglect of agriculture by commercial banks is misapplication is a sure prescription for repayment default. well known. In the 1970s, in an effort to prompt funding for For microfinance institutions, there is no rule which compel the rural economy, commercial banks were required to open them to make small and short-team loans. From experience, specified number of branches in rural communities. The the real reason for the neglect of agriculture is the rising rural banking programme recorded limited success for commercialization of microfinance. Microfinance left the rural economy in early 1990s when premium was being familiar reasons. Rural branches were considered not placed on sustainability and profit at the expense of impact. viable. For similar reasons, the poor were excluded from Operational strategies and habits were being borrowed from institutional credit. Farmers were considered as bad credit commercial banks. Priority is being given to short-team risk and therefore not “bankable.” loans and deposit mobilization; practices that are not responsive to agricultural lending. Current trends in microfinance practice reveal the same neglect of agriculture. Proportion of loan portfolio of This trend must be reversed to make microfinance relevant microfinance institutions to farmers is insignificant. From to our economic environment. It should be noted that rural Uganda through Cote d'Ivoire to Nigeria, microfinance or agricultural financing does not necessarily compromise institutions and banks pay little attention to agricultural profit making. It only requires innovation in product design financing. This is ironic as the rise of microfinance was and service delivery procedures. Applying the same lending prompted by the desire to meet the financial needs of those and savings mobilization approaches of conventional excluded from formal financial institutions. Added to this is banking to rural financing is a sure prescription for disaster. the fact that early microfinance interventions were targeted Lending should take into consideration the peculiar features at farmers. The reason for this development is familiar. First of farming and farming calendar in deciding facility sizes, is the perception of agricultural financing by conventional disbursement and repayment schedules. For instance, why lenders as a risky business. Statistics are sometimes should loan amount projected for expenses over a farming presented to validate this position. Usually fingers are period of ten months be disbursed at once? This will pointed at the propensity of male farmers to apply their loan certainly lead to misapplication of funds that are not readily required at the point of bulk disbursement. Success has facility to marry more wives rather than acquire farming been recorded through staggered or installment loan inputs. Floods, drought and bush fires add to the risk factors. disbursement, which makes funds available only when it is Despite their commitments to address poverty, micro required. Making profit with impact on the people in finance institutions have not been immune to this negative microfinance requires some measures of imaginative perception of rural financing. interventions. 4 Cover Story a credit decision. In every credit creation situation, there Canons of Good Lending should be answers to the following questions: ! How much is needed by the customer? By Tim Ogbebor ! What is the purpose of the amount requested? typical bank plays a vital role in the development ! How long does the customer need the money? of the economy. It acts as a financial intermediary ! What is the source of repayment? Abetween the Surplus Savings Unit (SSU) and the ! Is the business for which money is to be applied Deficit Savings Unit (DSU), that is between those able to repay the amount requested? ! individuals /organizations in the society who have money What is the security for the amount? but do not immediately have the business ideas to invest The above questions form the basis for a thorough credit analysis/appraisal